Is regulation holding back equity release?

A lack of understanding, not regulation, is holding back the equity release market in the UK, providers and advisers say.

This week the regulator announced it will be investigating whether regulation is hampering demand for equity release products.

Speaking at an FCA conference in London, FCA director of strategy and competition Christopher Woolard called the UK and European Union equity release markets “relative minnows” compared to the US.

He cited EU calculations that 13 member states had recognised equity release markets but that these accounted for just 0.1 per cent of total mortgage lending.

But providers and advisers say a lack of understanding is the cause rather than over-tight regulation.

Equity Release Council chairman Nigel Waterson says: “The regulator tends to say equity release products are higher risk than others. But we think that’s not the case when you compare them to mainstream mortgages – you can’t lose your home in equity release, but you can in normal mortgages.

“We are very keen to co-operate and any reduction in red tape is welcome as long as it isn’t to the detriment of the consumer.

“It’s a matter of a lack of awareness generally. That includes advisers who don’t really think of it naturally as something to be on their check list – that’s a big challenge for the industry.”

Zen Financial Services managing director Mike Pendergast says: “Lack of knowledge is holding back the market, because it’s perceived as complicated and risky.”

But Key Retirement group director Dean Mirfin says part of the problem is the way equity release is treated as part of the broader market.

He says it is difficult to simplify how the products are sold but suggests they could be “carved out” of general mortgage regulation.

He says: “There are some things that can be changed, but a lot of the complexities are linked to its long-term nature. The implications in terms of long-term planning are part of the challenge for advising in this area.

“It’s paperwork heavy, but if you look at the illustration and work around the sale, it’s no different to a mainstream mortgage market – simplifying that is a broader question for the mortgage industry more generally. One of the ways to simplify equity release would be to carve it out of mortgage regulation.

“Maybe looking at it as a separate entity will make it a more straightforward project for the FCA.”

Just Retirement director of external affairs Steve Lowe says the market, though small, is growing quickly and tight regulations are in place to protect consumers.

He says: “The market has had double digit quarterly growth for a long time. Although it’s small, it’s growing at a quick pace.

“The priority of the industry has been that equity release is rock solid from a consumer protection perspective.”

He adds: “Regulations aren’t stopping people getting access to lifetime mortgages today. If you want to bring in innovations that are restricted because that is deemed to offer consumer protection that’s a debate that has to be had between the regulator, the Equity Release Council and the industry.”

However, Lowe says providers are working with lenders to solve the problem of borrowers with interest-only mortgages struggling to repay loans.

He says: “The much more significant battle people are facing is the interest-only ticking timebomb. High street banks have withdrawn from lending to older people. I suspect what will happen is they will start to fuse together a bit, lots more people are using lifetime mortgages to overcome this problem.

“You might start to see some hybrids because nobody’s cracked this yet – we’re working with a lot of high street banks on a solution.”

In the first half of the year, equity release providers lent £710m to customers – a half-yearly record. However, to put this into context, any one of the largest 15 lenders in the UK lent either the same or more individually than the equity release sector did as a whole in H1.

Adviser view

Matthew Harris, director, Dalbeath Financial Planning

We don’t do much equity release as it’s usually a place of last resort. Average pensions are small and once you’ve used them they are gone, but at least it’s not giving away rights to your house.

The problem with equity release is it often results in people not being able to pass on their property, so often it is the opposite of what they want. You can also be left in in serious difficulties if you want to sell the property at a later point.

Record lending figures

The second quarter of 2015 saw £384.3m lent through equity release products, the most in any quarter since record began in 2002, Equity Release Council figures show.

This represents an 18 per cent rise on both the previous quarter and year-on-year when lending hit £325.6m over the quarter. This equates to over-55s effectively withdrawing £4.2m of housing wealth every day from April to June.

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21st February 20183:09 pm

Comments

There are 4 comments at the moment, we would love to hear your opinion too.

I sincerely hope it is.
The last thing we want is for this product to be flogged like chips.
It may well be appropriate in some cases, but these – if advice is to be competent – will be very few and far between. In effect this product is aimed at older age groups and the last thing they really need is to play Russian roulette with the roof over their head. Yes I know they can say in the property till they die, but the product is still not sufficiently regulated in my opinion. There are 4 main points on which the Regulator should focus:
1. Ban all commission.
2. Ensure that 1. above leads to reduced terms for the client.
3. Ensure absolute transparency – there are too many instances of third and fourth parties taking a cut – which is buried deep in the small print.
4. Ensure that the disclosure documents are shorter, clear and concise with no small print and that all monetary disclosure and costs (including the adviser fee) appears on page one in lager point bold type and that these costs show how it affects the deal. Also on page one it should show that if house prices remain static – how long it would take for the interest (in the case of lifetime mortgages) to eat up the whole value of the house. Illustrating anything with the assumption of rising property prices should be banned.

Repeating myself again, why does an IFA who advises on pensions and post retirement issues have to hold mortgage permissions and CEMAP simply to advise on Equity Release, something which may only happen very occasionally. Mrs C has ER1, and still cannot understand why she has to go to the trouble and huge expense to do this. She can do home reversion. The rules need changing, the FCA brought into the 21st Century so that IFAs can advise on Equity Release because they are probably best placed and qualified to do so.